Macroeconomics: The Day Ahead for 11 September 2026

The week is ending on a chaotic, confusing and very uncertain note, with escalating tensions in the Red Sea seemingly tipping the balance for oil prices and inflation risks, as the conflicts in the Persian Gulf and Black Sea show no sign of easing. The disconnect between physical and paper energy markets has been all too visible for a long time, but a comparison of where paper (futures) and physical markets stand as per the attached tables is worthwhile, primarily to get a more detailed view on inflation risks. The spillover into interest rate markets is becoming more acute, with the rebound in US PPI, rather more hawkish-than-expected messaging from the ECB (though with optionality retained), and a not fully covered US Treasury 10-20-yr buyback operation yesterday compounding ‘risk off’ moves, though perhaps notably only modestly impacting major currency cross rates, but with today’s US CPI potentially a key flash point. Outside of the latter, there are another very high Japan PPI, another upside surprise on UK GDP, the IEA’s monthly oil market report to digest, while US preliminary Michigan Sentiment and a much anticipated USDA WASDE report lie ahead, with the focus also on next week’s run of Fed, BoJ and BoE policy meetings.

** U.K. – July GDP **

I have been of the view that the narrative on the UK economy in the media and among market commentators has been much too negative, both from a purely domestic perspective and on international comparisons, in the past couple of years. To be sure, UK political instability and the post Brexit hangover has been a major and understandable driver of that, but the narrative has become stuck in a negative rut that fails to take a proper 360 degree analytical perspective, and appears to be entrenched in deeply divided political advocacy. Yes, there are a myriad of structural challenges, but these are no worse than in other developed economies, and in some cases less of a headwind. Be that as it may, strength in Services (above all Information/Communication and Admin/Support) as well as a healthy contribution from Manufacturing paced the much stronger than expected 0.4% m/m and q/q rise in July GDP, taking the y/y rate up to 1.6%, and gets Q3 GDP off to a very solid start, with AI-related and Cloud services showing notable strength. This is unlikely to prompt an MPC rate hike next week, but with underlying growth showing some resilience, and energy price pressures accelerating, a rate hike at the next Monetary Policy Report meeting on 5 November has to be considered a possibility. Obviously, the proximity of the latter to the key October 28 Budget may make for some communications challenges, given some may wilfully (mis)interpret such a move as criticism of whatever is in that Budget, but that could be mitigated if the BoE were to wind back its active QE Gilt sales, as some expect (even if that MPC decision will not be in any way dependent on Budget). Also of note is the unexpected fall in quarterly BoE Inflation Expectations: 1-yr 3.2% vs. 3.6%, 2-yr 2.9% vs. 3.1%, 5-yr 3.2% vs 3.3% (that is a like-for-like comparison for the new provider Savanta). That said, these are still elevated readings and obviously do not capture the latest bout of energy and, to a lesser extent, food price pressures.

** U.S.A. – August CPI **

Yesterday’s PPI rise was marginally above forecasts, though the greater concern was that a number of elements that feed into the end-of-month PCE deflators, such as health and legal services and airfares, all point to upside risks for those deflators. But for today, the focus is on CPI, with rebounding gasoline prices expected to pace a much faster 0.4% m/m increase in headline CPI, after two benign readings, leaving the y/y rate at a very elevated 3.4%, while core CPI is seen steady at 0.2% m/m, edging down the y/y rate to 2.4%.

Market Fed rate expectations remain finely balanced, with a 67% probability of a rate hike next week discounted, though an October move is now fully discounted, with the former set to shift quite sharply on any miss relative to forecasts. As previously noted, real US Treasury yields are now at levels in real terms that will prompt fund investors to debate asset allocations; eminently, this will also consider other component risks, such as lax fiscal policy, US Treasury interventions and prospective foreign demand against the backdrop of intense geopolitical tensions, AI-related investment pros and cons, and relative equity valuations, along with financial stability risks (above all leverage, liquidity and corporate financial engineering).